Florida's insurance regulator to back policies over fears 17 insurers will be forced to cease operations

A day after an insurance rating agency delayed an announcement that might have forced 17 property insurance companies to cease writing business in the state, the Florida Office of Insurance Regulation announced a plan creating a temporary reinsurance program through Citizens Property Insurance Corp.

The plan, according to a Wednesday, July 27, statement from the state’s insurance regulator, was put in place “in the event of disruptive financial ratings downgrade from Demotech Inc.”

“This unprecedented solution would allow insurers to meet an exception offered by (Fannie Mae) and (Freddie Mac) and ensures Floridians can maintain coverage during hurricane season.”

The problem that the change is meant to correct arose earlier this month after it was publicly disclosed that Ohio-based Demotech had reached out to the 17 carriers to inform them they were to be downgraded, meaning the companies would no longer be able to write policies in Florida. This news angered state officials who protested the move, saying it could be disastrous to a system already nearing collapse.

In a July 26 letter to David Altmaier, commissioner of the Office of Insurance Regulation, Demotech wrote that it would delay the release of the ratings, offering the companies and its policy holders a temporary reprieve.

“In sum, Demotech disagrees with OIR’s portrayal of our company, rating process and client communications, and takes issue with the premature, public dissemination of such misinformation,” Joseph L. Petrelli, the company’s president, wrote.

“Nevertheless, Demotech continues its review process for all Florida-focused carriers consistent with its established processes and will take such rating actions as it deems appropriate in support of Florida homeowners.”

The Florida Office of Insurance Regulation’s move July 27 takes advantage of an exception in Fannie Mae’s and Freddie Mac’s rule requiring the mortgages they back to have policies written by an insurer that meets financial rating requirements.

The exception, the state’s insurance regulator says, is for an insurer covered by a reinsurer who assumes 100% liability for any unpaid covered losses if a company becomes insolvent.

Given the circumstance, the office, working with Citizens Property Insurance Corp., created the program that meets the exceptions.

“This innovative arrangement satisfies requirements set by the secondary mortgage market,” Altamier says. “In the event we need to implement this temporary solution, consumers will not need to seek coverage elsewhere, agents will not need to move policies and lenders can have confidence that these insurers continue to meet the mortgage qualifications.”

State lawmakers passed an insurance reform bill in May meant to address problems with the state’s property insurance system. Problems with the system has forced insurance companies to leave the state or become insolvent, in the process putting too much pressure on Citizens, which was created to be the insurer of last resort.

As part of the legislative package passed during May’s special session was $2 billion for reinsurance relief through the state’s Reinsurance to Assist Policy program.